The federal government will consider restoring $404 million cut from hospital budgets around Australia this financial year following the reversal of a cut to Victorian funding and threat from the Prime Minister to bypass state governments and fund hospitals directly.

Health minister Tanya Plibersek said Prime Minister Julia Gillard had written to other states to say she would consider restoring funding to hospitals after a readjustment of population forecast figures in October had resulted in a $404 million shortfall this financial year.

The restoration of $107 million in funding to Victoria would be made directly to hospitals, bypassing the Baillieu government.

After the announcement of the new arrangement with Victoria, NSW and Queensland demanded the return of their share of cut funding.

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NSW Health Minister Jillian Skinner said Ms Plibersek also had an obligation to reverse cuts in funding to other states.

''It doesn't relieve the federal government of its responsibilities to restore funding to all states and territories,'' Mrs Skinner said.

Mrs Skinner said the direct funding to Victorian local hospitals networks was ''a very strange deal''.

''I'm absolutely stunned by it,'' she said. ''It goes against entirely not only the COAG agreement but the spirit of the agreement in that specifically states that the states and territories are the system managers and that funding is to go through the states and territories for disbursement to the hospitals.''

''Queensland should get that money back because it equals thousands of operations in Queensland,'' he told ABC radio.

''It means that we won't have to cancel elective surgery for non-urgent patients and also it will mean that we'll be able to save some of the clinical jobs that are now at risk.''

In October last year the federal government announced that it would reduce its health payments to the states by $1.6 billion nationally over four years after a review of population forecasts indicated a decline.

The backdown on Wednesday night comes after widespread concern about the closure of 350 beds and cancellations of thousands of operations around Victoria.

Speaking in Melbourne on Thursday morning, Ms Plibersek did not rule out further adjustments in the years ahead, leaving uncertainty about hospital funding around Australia for 2013-14.

She said any other funding boost around Australia for this financial year would go directly to hospitals and come from funding otherwise earmarked for those states.

Ms Plibersek said all threatened services must now be restored in Victoria and she was pleased that Casey Hospital, in Melbourne outer south-east, would not proceed with plans to close its emergency department overnight.

She said that she was ''open'' to making arrangements in others states similar to those she had announced in Victoria.

Ms Plibersek confirmed on Thursday that the $107 million Victorian rescue package consisted of $55 million budgeted for a project to streamline national and federal laws, and the rest from federal reward money for meeting health benchmarks.

She said there would be no need to allocate further rescue funding in the new financial year, and the federal government would continue to use the new, lower estimates of Victoria's population to calculate payments.

Speaking to reporters in Adelaide, the Prime Minister threatened to bypass other states and deliver funding directly to local hospital networks while cutting other state funding.

"I have said to premiers and chief ministers very clearly, that the federal government is not going to tolerate the continued playing of politics with health," Ms Gillard said.

"There is a very clear message to those premiers: we will go around you, we will deal direct with hospitals and local hospital networks, and we will rearrange your budget for you.

"We will rearrange state budgets by cutting them back in other areas."

Victorian Premier Ted Baillieu said the Commonwealth funding was an interim measure, adding that ''the damage has already been done''.

''The money will be welcomed by hospitals, but this is a short-term fix and we have certainly not had a long-term fix on this,'' he said.

44 comments

Re the Federal Labor Government manouvering with states over health. Is it just the LNP State governments smokescreen to hide their massive Health cuts? Don't forget the recent massive cuts to health by LNP governments in Qld, NSW and Vic and in the Howard Government by Abbott himself when Health Minister. If he were to win government it would be interesting to see how much the States scream then when he cuts their Health budgets (again).

To paraphrase the potential Treasurer Joe Hockey. It is in the DNA of the LNP.

Commenter

Alan

Location

Gold Coast

Date and time

February 21, 2013, 1:16PM

Well not really because most of state funding comes from the federal government anyway through the GST distribution. Victorians have been dudded by the government on their share so the victorian government had no choice but to make cuts to public services. If the feds restore the funding then the state will put it in the hospitals,

Commenter

Craig

Location

Collingwood

Date and time

February 21, 2013, 1:42PM

Craig, health is a state govt issue. The Fed top up in various targeted circumstances.

Lib govts are cutting their state budgets and are not meeting their targets, which have to be met to get the Fed funding.

The Feds are now forced into topping up State govts, especially the Lib states, which means the Lib states, are likely in my view, to keep cutting funding.

However if Abbott is our illustrious leader after September, health budgets are likely to be cut at state and Fed level, leaving health in an even worse state than now.

Libs answer is to aim for private health insurance and along the way people in Aussie health becomes more like US health, pre Obama

Commenter

ccb

Date and time

February 21, 2013, 1:52PM

ccb....short memory or just selective. "I'm Kevin and I'm here to help, I'll end the hospital blame game." Sure did. Had a lot of experience in how hospitals are funded? No didn't think so. ROFL.

Commenter

Nick

Location

Melbourne

Date and time

February 21, 2013, 2:10PM

You got to give it to JG, she has balls....I my mind if you analyse all policies rationally then JG is the most capable politician ever

Commenter

KKN

Location

Mel

Date and time

February 21, 2013, 2:52PM

@AlanThere is no smoke screen. All State Health Ministers(ALP and Liberal) signed a document back in NOV 2012 saying these Federal Health were wrong and is was a claw back of Health funding by the ALP. These cuts were to come into affect immediately. Half way through the financial year. Budgets had been set for the year know there was a set amount of money then the ALP ripped some money back so operation had to be cancelled and bed closed.This is all about the ALP trying to save money and to blame the States well this time it did not work.What this has shown that in reality neither side ALP or LIberals can be trusted and the Federal Govt should be the sole provider and operator of the Health system.

Commenter

terry

Date and time

February 21, 2013, 3:08PM

craig, the state payments changed when GST was introduced. Look back at what Howard did then and don't criticise me.

Health is still a state issue. And so is education, but the states are asking for more and more cash from the feds but cutting their own budgets at the same time.

In NSW we have good old Fatty O'Farrell cutting health, education, police and fire brigades to name but a few, but millions are being spent to open up national parks for shooters. Go figger

Commenter

ccb

Date and time

February 21, 2013, 3:18PM

Alan there was no cut to Health funbding on QLD. Go do some research into the lastQLD budget and you will see the Newman govt put an extra $600 million in for 2012/13 while Swan is only adding $600 million over 4 years.

Plibersek, Gillard and Swan are all telling porkies you seem to believe.

Commenter

Andie

Date and time

February 21, 2013, 3:26PM

ccb the Feds now provide the majority of Health funding and cut the funds in Oct to try to meet their phantom budget surplus only and nothing to do with anything else.

Commenter

Andie

Date and time

February 21, 2013, 3:29PM

Andie, Newman might have put an extra $600m into Qld Health but, if he did, why is it necessary for about 150 positions, that currently have people in them, to be cut from the Cairns and Hinterland Health Service? Something simply doesn't add up. I'm guessing that Springborg and Newman are trying to claw back the humungous amount of money thrown up against the wall by the IT disaster and so the $600m plus the staff savings are being used to cover the incompetance of Qld Health bureaucrats in Brisbane. Any of them sacked yet?